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Foreign multinational corporations (MNCs) have accounted for important shares of employment and production in Indonesian manufacturing since 1975, and these shares increased especially rapidly in the early to mid-1990s. These increases were concentrated in the machinery industries and in MNCs with large foreign ownership shares, and continued through the crisis of 1997-98 and beyond, despite apparently large withdrawals of inward foreign direct investment in 1998 and subsequent years. MNCs generally had much higher average labour productivity than local plants and, after controlling for plant-level variation in electricity consumption per employee, size and vintage, we found that these differentials persisted in about three-quarters of the cases examined. However, there was also large variation in MNC presence and in MNC-local productivity differentials across industries and time, with statistically insignificant differentials most common in apparel and footwear, as well as in MNCs with small foreign-ownership shares.

Most firms and plants in developing countries produce only for the domestic market and few are able to export. One plausible hypothesis is that foreign networks decrease export costs and that plants with large amounts of such networks will be relatively likely to start exporting. We focus on two types of foreign networks: foreign ownership and imports of intermediate products. Our results suggest that plants in Indonesian manufacturing with any foreign ownership are substantially more likely to start exporting than wholly domestically owned plants. The results remain robust to alternative model specifications and after controlling for other plant characteristics. There is no effect on exports of imports of intermediate products.Keywords : Exports; Sunk costs; Foreign ownership; Imports JEL classification : F10, F23, L10 I. INTRODUCTION T he heterogeneity of firms has been a core aspect in recent empirical literature on international trade (Helpman 2006; Bernard et al. 2007). Firms within sectors and countries differ substantially in various characteristics such as size, capital intensities, and productivity levels. The heterogeneity includes firms' participation in international trade: most firms typically produce for the domestic market and there are often few entries into exports. The obvious question is: what are the determinants of firms' participation in exports?Microeconometric studies on panel data find size, productivity, and skills of the labor force to be important determinants.1 It is likely, however, that more than large This paper was prepared as part of an ICSEAD project on "Foreign Multinational Corporations and Host-Country Labor Markets in Asia." The authors wish to thank participants at an ICSEAD seminar in Japan. Fredrik Sjöholm gratefully acknowledges financial support from the Marianne and Marcus Wallenberg Foundation. 1 See, for example, Jensen (1999, 2004), Bernard and Wagner (2001), Clerides, Lach, and Tybout (1998), and Roberts and Tybout (1997).foreign networks and exports © 2008 The Authors Journal compilation © 2008 Institute of Developing Economiessize and high productivity are required in order to export, considering the substantial difficulties involved. For instance, being able to export requires knowledge about foreign consumer preferences, distribution systems, legal frameworks, and a host of other aspects relating to the foreign market. Such information is costly to collect and is normally referred to as sunk entry costs: expenses incurred from entering a foreign market must be written off whether the firm decides to export or not.2 However, once the firm has invested in collecting the information, it can use this information without any large additional costs. The export entry costs can be expected to vary between firms, and Roberts and Tybout (1997, p. 561) suggest that foreign networks will decrease a firm's cost of collecting information on new markets. However, this issue has not been fully empirically examined. There are different channels where foreign networks can deve...